Monday, April 25, 2011

Combatting Corruption

Kaushik Basu, the chair of my dissertation committee in graduate school and now Chief Economic Advisor, Ministry of Finance, Government of India (coincidence? I don't think so...) which is essentially the same role as the Chair of the Council of Economic Advisors in the US has written an academic paper on combatting corruption. what is interesting about it is this: here he is in a policy role and he is taking seriously the part economic theory, applied to real problems, can play in shaping and improving policy.

As a member of a nascent policy school, I think this is a greatly neglected endeavor. The currency empirical study takes in policy is exaggerated at the cost of theory. Without good theory there are no good empirics.

Anyway, here is Basu explaining in simple terms the very straightforward was policy can be altered to alter the incentives and combat corruption in India:

I recently wrote a paper suggesting a way to cut down corruption. This is of course a large problem and, while we must work against the whole gamut of it, waiting to solve the whole problem must not become an alibi for doing nothing. It was with this in mind that I proposed one way of reducing one class of bribery: “harassment bribes”, defined as bribes that ordinary people often have to pay to get what is rightfully theirs, such as when a person’s income tax refund or driving license is held back, with all formalities completed, till she agrees to grease palms. Such bribes are just a segment of the large problem of corruption, but they are by no means negligible. For ordinary citizens, these are often the most ubiquitous forms of harassment at the hands of officialdom. My suggestion was that, for such crimes, we must not treat the ordinary citizen, who is the victim of this practice, on par with the official who takes the bribe, as our current law does. In particular, we should not punish the bribe giver but should instead make the penalty stiffer for the bribe taker and also require him to return the bribe. My belief is that if we make this kind of an amendment to India’s Prevention of Corruption Act 1988, there will be a sharp decrease in bribery. This is because it will now be in the interest of the bribe giver to get the official who took the bribe caught. Knowing this, there will be much greater reluctance on the part of officials to take bribes.

Soon after the British in India declared sati a crime, they went on to declare witnessing sati also a crime. Is there any surprise that the courts seldom found any witnesses for sati?
In today’s India, where, at last, there is public stirring to bring these pernicious practices to an end by drafting new laws, I wanted to make a small contribution to the debate by drawing on my own expertise. And the reaction to my paper has been heartening beyond measure in the media, domestic and international. But what really pleases me is the hand-written letters I have got from ordinary people thanking me for suggesting that they be not treated as criminals on par with those who forced them to pay a bribe.

It is really a tribute to India that we can discuss and debate such touchy topics in public and with transparency. There are few places outside of a handful of industrialized nations where this is possible.

The reason I am summarizing my paper is that I am saddened by two or three vicious articles that appeared in the last few days turning my argument on its head and trying to silence the debate instead of participating in it. I do not know if this is done with some vested interest or simply from a failure to understand what I was saying. Hence, this second attempt. There are some responses to my article which, whether or not they agree with my main proposal, are well-argued, show respect for the Indian reader and join the discussion in the spirit in which I wrote in the first place (see Indian Express and Business World of April 23, for instance).

These require a more thought-through response but that will have to wait.
For now, let me just add what I have said before in public: one reason I refuse to partake in the debate about whether corruption enhances or thwarts growth is my view that corruption should be considered unacceptable in a civilized society no matter what it does to growth. In my life as an economic adviser nothing distresses me more than the news breaks on corruption that we get ever so often. Our citizens deserve better.

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